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The Spy Who Saved Cleveland

Keith Epstein

Tears stream down Lakeisha Jeffries’ face and over her chin onto a few dried splotches of bright indoor wall paint. Words falter and she apologizes for the surge of gratitude. “I’m sorry. It’s so … I can’t talk about it … My whole life … changed.”

Jeffries is part of a work crew renovating a house in Glenville, one of the city’s poorest neighborhoods, on a street of empty lots and abandoned wrecks of homes, many strewn with trash or old tires and crudely bandaged with plywood and sheets of plastic. It’s a place that for decades has seemed unalterable no matter how many government programs and well-meaning philanthropies got involved; a place where abject poverty, joblessness and crime reinforce the racism in a city long divided, and where infants still die at a higher rate than almost anywhere else in the country.

Unemployed for most of her life and reliant on her mother, friends and food stamps, Jeffries scraped by as her husband took care of their eight children, squeezed into small digs in Cleveland public housing. “Those were some dark days,” she recalls.

Now, at age 33, she is a crew chief for a worker-owned cooperative in which she owns an equity stake, from which she receives health insurance, and through which she may soon buy a subsidized home of her own—“something I can say is mine.”

The cooperative is a key component in an audacious experiment aimed at dissolving a decades-old divide between an area known as University Circle and the six destitute neighborhoods, including Glenville, that surround it.

University Circle is home to the sumptuous and sprawling institutions of the privileged: Severance Hall, the Georgian temple of the famous Cleveland Orchestra; the Cleveland Museum of Art, the marble residence of Rodins and Renoirs; Case Western Reserve University; and within a half-mile of each other, University Hospitals, one of Ohio’s biggest employers, and theCleveland Clinic, so globally eminent that celebrities and sheikhs jet in for bypass surgery. For decades now, University Circle has been a destination for the mostly affluent commuters, scholars, concert-goers and museum visitors who parachute in and then head back to their far-flung homes, while seeming inaccessible to tens of thousands of people living only blocks away.

Today, though, University Circle’s boosters describe a community where felons are getting jobs, hospitals are hiring from the neighborhoods, dilapidated houses are being refurbished and banks are making loans to collectives of the previously unemployed. A “health technology corridor” has given birth to 170 startups, many located in new office space on brownfields cleansed of contamination. “Uptown” is hot: A new retail and residential real estate development bustles with students, their parents, doctors, and people from the nearby neighborhoods who dine, shop and attend concerts before walking back to their homes.

The Cleveland program, now entering its 10th year, expands on preexisting models—from recent initiatives in West Philadelphia to a priest’s campaign to empower Basque workers after the Spanish Civil War. It has been in place long enough that it has seen its share of successes and experienced invaluable setbacks that have forced a rethinking of approaches when economic realities didn’t align with the vision. Buffalo, Atlanta, Amarillo and at least a dozen other cities are closely monitoring the program.

Is Cleveland really coming back? Is the Greater University Circle Initiative, as the grand experiment is known, a solution for other cities? “Hold on,” says Ronn Richard, a former diplomat and CIA executive widely credited as the catalyst for Cleveland program. “Please don’t hype it. It’s not a national model yet.”

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Cleveland is the second most impoverished city in the country, after Detroit, according to the U.S. Census Bureau, which estimated as recently as 2014 that one in every three people and half of all children live below the poverty line. Both cities have suffered from industrial decline, suburban flight and the distressed neighborhoods left behind, conditions worsened by the housing crisis of 2008 and the recession. Forbes, ranking the nation’s cities five years ago, called Cleveland the “most miserable.”

The six neighborhoods targeted by the Greater University Circle Initiative are among the worst of the worst, with one in every three houses vacant, and one in every four residents unemployed. Shops are shuttered and factories with broken windows are reminders of the Rust Belt’s decline. As of 2012, the median income for a household in these neighborhoods was$18,500, which has barely budged for years. Glenville, where Jeffries lives, is almost entirely African-American, and is where in 1968 a deadly shootout between the police and an armed militant group triggered a rash of fires and looting. Two years earlier in nearby Hough, riots spurred by racial tensions between white business owners, the predominantly white police force and African-American residents led to six days of violence. Such events leave scars, and the disparities between the haves and have-nots are particularly pronounced where the main avenue from downtown, Euclid Avenue, intersects University Circle.

The strange separation between the ivory tower establishment and the beleaguered neighborhoods shocked Richard when he arrived in 2003 to head the Cleveland Foundation, an organization with around $2 billion in assets dedicated to “the greater good of citizens.” Raised in Washington, D.C., to parents involved in the civil rights movement, he had traveled the world as a State Department diplomat and taken risks in R&D as an executive at Panasonic and at In-Q-Tel, the Central Intelligence Agency’s venture capital fund that invests in data-mining and other secretive technologies. “It was so weird seeing Euclid boarded up. In any other city, that would be prime territory,” Richard says. “Can you imagine if Pennsylvania Avenue [in Washington] were like that? It was so depressing.”

His wife, Bess, an artist, had been teaching minority students at the Cleveland School for the Arts, minutes from the art museum with its banner advertising the price of admission, “free.” When she assigned students to compare elements in three paintings there, one of them said, “Miss Bess? Where’s the art museum?” Another student knew, but volunteered that “it’s not for us.” That night, returning home, her husband opened the garage door to find her waiting there, upset. “So? What are you going to do about it?” she challenged him. The following Monday, Richard summoned his troops at the foundation. “We’ve got to get rid of that invisible barrier,” he instructed.

***

In West Philadelphia, the outlines of a powerful new approach awaited discovery by Clevelanders. Judith Rodin, then president of the University of Pennsylvania, had responded to a period of crisis over the safety of its students and staff—and a socioeconomic divide—by forging new bonds with the poor neighborhoods just west of the school. Drexel University, also in Philadelphia, embarked on a similar project. As in Cleveland, wealth and inner city poverty abutted at the border, with a collision that threatened expansion, security and a sense of community. By 2002, half a billion dollars in university and private investment transformed and blurred the wall between town and gown, while Penn systematically shifted nearly $100 million of procurement each year to businesses in distressed West Philly neighborhoods.

Philadelphia’s approach was premised on a straightforward concept: Harnessing and redirecting an “anchor” institution’s purchasing and economic muscle could have a powerful effect on the neighborhoods. Unlike other enterprises that might shift operations elsewhere, a university is locked in place. So, in theory, it has a financial self-interest in the safety, health and appeal of nearby neighborhoods, for the sake of students and employees, not just altruism.

Richard and his team in Cleveland envisioned a more expansive version of the Penn formula. After all, University Circle had an unusual concentration of institutions that could drive more robust economic growth. The “eds and meds” at University Circle spend an estimated $3 billion on goods and services each year, and have tens of thousands of employees. Nationally, by some estimates, hospitals and universities employ more than one in 12 workers, and they are associated with $1 trillion of the country’s $15 trillion economy, or more than 6 percent of GDP. Ted Howard, a social entrepreneur who is one of the architects of the Cleveland initiative, urges anchor institutions to buy local because of the “potent multiplier effect.”

The big institutions pledged to employ people from the neighborhoods and to buy from residents and their businesses. Those anchors also vowed to provide subsidies to their own employees, typically commuting from the suburbs, to buy and rent in the communities around University Circle: Workers could get up to $1,400 for one month’s rent payment, $8,000 to make exterior repairs to their existing homes in the target area or up to $30,000 in loans to buy. After five years of living locally, the loans are forgiven.

The city, nonprofits and the federal government financed two new transit stations, while philanthropic and state dollars contributed to building office space for health technology startups that would try to hire locally, and also to small business owners in the neighborhoods to help them sell to the large institutions.

Some of the institutions also sank millions of their own money and took huge risks to spur the effort along. Developers, backed by loans and investments by Case Western, spent $86 million turning a desolate stretch of Euclid Avenue into a retail and residential hub. Eight foundations joined the large institutions in contributing nearly $8 million to launch the worker-owned cooperatives like the company where Jeffries works. In Cleveland, the mantra for exponential building of wealth became “buy local, hire local, live local, and connect” the separated communities.

Keeping it all together wasn’t one of the anchors, as in Philly, but the century-old Cleveland Foundation, the first community foundation in a large U.S. city set up to pool donations to coordinate grants for “the mental, moral and physical improvement of the inhabitants of Cleveland.” The foundation, housed in an historic building downtown, is a powerful, respected entity with deep pockets (it doles out about $90 million in grants across the city each year), influence (board members include local chief executives, wealth managers and partners in big law firms), and the ability to provide analysis and persuasion in the form of Richard.

At the heart of Cleveland’s innovation was this idea: Instead of just giving the unemployed a job, why not a stake in the system? Why not a share of the profits? Howard, director of The Democracy Collaborative, a University of Maryland research center, advocates broader strategies to build wealth in communities than the usual tactics of creating more low-wage jobs. So he suggested to Richard’s team that they borrow from another, older model involving Basque workers, left impoverished and hungry following the Spanish Civil War. In 1956, led by a Catholic priest, the workers started making and selling paraffin heaters, sharing the proceeds and eventually expanding to other products. Today, some 120 cooperatives thrive in the Mondragon conglomerate, among Spain’s largest industrial companies, employing 74,000 and generating $14 billion in revenue each year.

The Cleveland consortium created a solar company, a company to grow lettuce and a commercial laundry. Rodin, too, had created with Penn’s Wharton school a commercial laundry in West Philadelphia, but these cooperatives near University Circle would borrow heavily from the Mondragon example. Symbolizing renewal and environmental consciousness, the three-acre greenhouse, cavernous as a Wal-Mart and capable of producing 100,000 heads of lettuce monthly, even in a Cleveland winter, rose from the ruins of 35 abandoned homes. The cooperatives constituted the first commercial investments in neighborhoods like Glenville in three decades. “We wanted to make a statement,” recalls Richard. “We’re not abandoning these neighborhoods. We care about these neighborhoods, not just educated whites and Asian-Americans. We’ll succeed or fail together.”

The aspirations were sky-high—too high, as it turned out. Within eight years, predicted Howard, workers in the cooperatives would each have $65,000 in equity. Five thousand people from the six neighborhoods would have jobs. There’d be dozens of cooperatives. A mostly gushing press all but declared the Cleveland experiment a success. Fast Company asserted that the cooperatives were “Lifting Cleveland Residents Out of Poverty.” “Cleveland’s Worker-Owned Boom,” declared another magazine. Headline in the Economist: “Can Cleveland Flower Again?”

Today, those predictions have fallen far short. But even clear-eyed experts continue to express confidence in Cleveland’s approach. “Cleveland is absolutely right” to take a holistic approach, says Rodin. “One of the things I've learned is this notion that for 21st century problems siloed approaches no longer work. The problems are too big, too complex, and too costly.” But these efforts, she adds, are “not for the faint-hearted, and it’s not a short-term intervention.”

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Evergreen Cooperative Laundry is housed in a drab former torpedo manufacturing facility on 105th Street in north Glenville. Outside, a colorful wall mural depicts the three P’s of the trendy social impact entrepreneurs would like to see as measures of corporate performance—people, planet and profits. When Allen Grasa showed up at the laundry, four years into its operation, he saw little in the way of planet or profits; all he could see were people—too many of them, too idle, laboring unsustainably, often incorrectly, resulting in too few sheets per hour, at too high a cost, and with results not nearly as pristine as customers expected. A heroin user broke a key piece of machinery, a boiler. Training didn’t exist, nor did a sense among employees of being in it together—a key to success in collectives. In 2013, the laundry lost $1 million. “I couldn’t believe what a mess it was. I’ve never seen such a screwed up plant in my life. Everybody was clueless,” says Grasa, a 24-year veteran Mr. Fix-it of the local commercial laundry industry brought in to clean house.

Grasa made the startup profitable, barely, last year, without needing many new customers: A $92,000 profit required only $100,000 in additional revenue, inefficiencies had been so great. Social mission gave way to business imperatives. Grasa fired people, replacing them with those who had industry expertise, regardless of where they lived. He cut pay, in some cases from $20 to $9 an hour, and trimmed the work force to 45, only half of whom live in the target communities. “Now that we know how to do things, we need to get more work to do,” says Grasa. “Then, hopefully, once we have more customers, we can go back to hiring from the neighborhoods.”

Similar stumbles hampered the other cooperatives. At Green City Growers Cooperative, fans in the greenhouse failed to prevent young plants from wilting in heat that climbed over 100 degrees. Reliance on one type of lettuce, at a price higher than that of mega-farms in California with cheaper labor, failed to generate sales. The greenhouse, operating at only half capacity, scrambles for customers, sometimes as far away as Georgia.

Ohio Cooperative Solar struggled, too. Domenic Fatica, with experience in construction, refashioned the solar company more broadly into Evergreen Energy Solutions, which helps clients conserve energy and weatherize. A $1 million project in two garages of the Cleveland Clinic is expected to yield the clinic $3 million in energy savings by 2025.

But even with a broadened energy focus, the cooperative ran into market impediments. Labor unions and collectives might seem to have an affinity, but in Cleveland Fatica must tread lightly. A perceived threat to union jobs by his cheaper crews could limit his ability to win business, so he has found it easier to seek anchor institution dollars set aside for “maintenance” rather than capital improvements—an area in which organized labor dominates. As a result, the cooperative has branched out, including crews like Jeffries’ to refurbish homes, and taking other construction and handyman jobs around town. “Whatever I can drum up, really,” Fatica says.

These early failures provided important lessons. The excitement over hiring, buying and selling locally proved “a bit mesmerizing,” overshadowing business necessities, acknowledges John McMicken, CEO of the cooperatives. McMicken, who had no experience in greenhouses, energy or commercial laundry, originally thought he’d be launching a fourth cooperative involving documents management—his background. But it quickly became apparent that the three existing co-ops needed to become stable first. While getting the anchor institutions aligned and securing some $6 million in loans from banks had been “itself a small miracle,” the flood of early uncritical publicity reinforced the belief that the cooperative model could do nothing but prosper. “I’ve never seen the phenomenon of so much positive attention for startups—without having delivered anything in the form of results,” he says. Every time someone would call to ask about the Cleveland model, “I was like, ‘Can you give us a year or two to prove what we can do?’ We haven’t even started the race.”

McMicken changed the approach. Blind altruism was out. The cooperatives would have to fly on their own as viable startups. “We need profit,” Fatica recalls McMicken saying, pushing the cooperatives to diversify and market themselves differently. Basil is now growing in a huge part of the warehouse, deals are being struck with distant food manufacturers, not just local grocery stores, and Green City Growers hopes to stand out in the marketplace with a sandwich and salad hybrid lettuce dubbed “Cleveland Crisp.”

The laundry, too, now targets what it can better handle—smaller customers such as nursing homes, instead of competing on price and volume with a commercial laundry behemoth owned by the Cleveland Clinic. “We’re small for-profit businesses, and we need to act like them,” explains McMicken. Once stabilized, the social promises can start being fulfilled.

Payroll and profit-sharing payouts have been paltry next to predictions; only about $2,000 to $3,000 per worker-owner, and only at the laundry and the solar co-ops. Altogether, there are only 113 people employed at the three startups, nothing like the approximately 5,000 envisioned at an eventual conglomerate of 10 businesses. Only 39 of the 113 live in the six target neighborhoods.

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The cooperatives weren’t the only facets of Cleveland’s approach that proved tougher to get off the ground: Convincing the anchor institutions to consider hiring from the neighborhoods was no small feat. University Hospitals, for instance, typically participated in “cause marketing,” such as sponsorship of the annual Komen walk for breast cancer, that aligned with the hospital system’s cancer expertise. Richard of the Cleveland Foundation was pressing for a very different commitment that could be a tougher sell internally. Spending on laundry or lettuce is “not really charity—it’s investing in a community,” says University Hospitals chief administrative officer Steven Standley, also chairman of the Evergreen Cooperatives board.

Hospital systems in Ohio have a unique set of requirements, including restrictions on hiring people with a criminal record. A unique jobs agency, Towards Employment, created special training programs with the hospitals’ HR departments aimed at giving the never-employed skills, while creating pathways to getting hired and, sometimes, promoted. So far, 62 people from the neighborhoods have found entry-level positions at University Hospitals, mostly as food workers and cleaners, with 26 more on the way. “It’s jobs first and foremost,” says Chris Ronayne, president of a community development organization at University Circle. Altogether, only about 3 percent of the roughly 58,000 employees at the hospitals live in the nearby neighborhoods.

Harnessing the purchasing power of the anchor institutions, meanwhile, has had some effect, though around three of every four dollars spent by the institutions are for products and services from outside Cuyahoga County, a 2014 review by Cleveland State University noted. More people are living locally: To date, 241 employees of the anchor institutions and cooperatives with a median income of $91,065 have bought homes ranging in price from $16,000 to $549,000. Almost all—82 percent—come from outside University Circle and the neighborhoods. Some employees of the coop, meanwhile, have done well enough to move away from the area—a form of defeat, given that the cooperatives are ostensibly focused on building community wealth.

Because more developers and businesses are moving in—and patronizing the cooperatives—it is now possible to sleep on Evergreen-laundered sheets at the recently built Marriott Courtyard hotel, be helped to the bathroom by an aide at University Hospitals who might have been jobless a few years ago, or dine in a bistro in Uptown whose gourmet vinaigrette with goat cheese contains crunchy, brilliant “Cleveland Crisp,” and then to stroll home, only minutes away. “In an impossible economy,” says Ronayne, a former chief city planner at Cleveland City Hall, “we’ve built and remodeled hundreds of housing units, and people from all kinds of places are now calling this home, not just a place to work or see the symphony.” Concerts in a park near the Circle, a bowling alley, and stores in the Uptown retail center are buzzing with diverse crowds from across the neighborhoods and across Greater Cleveland. Some musicians from the Cleveland Orchestra perform Ravel and Shostakovich at the Happy Dog saloon, the better to reach new audiences. “People now talk about neighborhoods without borders,” says Lillian Kuri, who helped develop the strategy for the initiative for the Cleveland Foundation.

In a sign of the far-reaching benefits for the anchor institutions in such models, Case Western—known for its biomedical research and business, law, dental and nursing schools—is now perceived as more trendy, especially for its involvement in social good. Three times the number of applications flood the admissions office compared with only seven years ago. The university says it has grown twice as selective, admitting only a third of applicants, compared with all but a third in 2007. Fundraising, too, has climbed 85 percent. It’s all a big turnaround for Case, its prestige in free fall only eight years ago from low morale, a $20 million deficit, and its inability to land some prospective students who saw the strangely deserted streets and lack of nearby amenities, and opted to go elsewhere. The deficit, the housing crisis and the economic recession nearly scuttled the university’s participation in the University Circle initiative, and Barbara R. Snyder, the university president, had to persuade skeptical colleagues that it was worth the risk.

Raising the stakes, the university agreed to guarantee financing for the $44 million Uptown mixed use development, then scrambled to find tenants to fill it. “There was no thought of ‘build it and they will come’…it was a challenging time,” Snyder recalls. The university agreed to be the master tenant, on the hook for payments if it was unable to find renters. But “if we didn’t step forward then,” says Snyder, “we knew lots of things would fall apart.”

Benefits to the beleaguered neighborhoods themselves are hard to quantify. Economist Ziona Austrian, a specialist in urban economic development at Cleveland State University who has formally evaluated the University Circle initiative for the Cleveland Foundation, says that despite a decade of effort economic evidence is elusive. “You can ask, ‘are the neighborhoods better today than 10 years ago?’ We don’t have an answer for that. Are some people better off? That’s a different question."

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Retired teacher Beverly Redfield has lived in Glenville for 24 years. She sees a mixed picture as she drives through the neighborhood: plastic greenhouses where neighbors now grow vegetables, a community park, trees that have been planted. And she notes that neighbors have bonded again in “our street club.” But for every refurbished home with fresh paint, many more buildings are boarded up. “Look at those spaces, those were homes—not empty lots. That’s not good. Oh, my—look at that garage over there. Isn’t that awful? On some streets, the worst is now.”

Richard acknowledges that his wife is “not satisfied. And I’m not satisfied. The art museum is still a mostly white, well-to-do crowd. We’re not nearly finished yet. Cleveland has a long way to go.”

Yet anecdotally, at least, the lives of many newly employed workers and their families have been radically transformed. Twenty-five year old Orlando Santaella Jr. hardly knew his father, who served 10 years in prison on drug charges, before they both started working at the energy cooperative four years ago. Orlando Sr.’s record prevented him from securing even unskilled jobs until his son, already working at the co-op, arranged an interview. “Life has changed so much,” reports the son, beaming with pride at his father. “Changes my life every day.”

“The two of them, they’re terrific,” reports Fatica, the general manager. “A lot of people who come right out of prison just want a chance—just one chance. We’re giving it to them.”

At the hydroponic greenhouse, a 43-year-old shift supervisor, Laurie Cook, known to co-workers as “Spike,” also served a decade in prison for a violent crime. Noticed for her manner and diligence in daily chores at a halfway house, Towards Employment in 2013 enrolled her in its special full-time, six-week training, not just teaching her how to manage a job and her money, but also how to explain her past. She volunteers the details, involving a knife and a neighbor, making no excuses and acknowledging a need to watch the occasional “lockdown movie” to remind her of how far she’s come. She has exceeded expectations; her probation period ended two years early. In May she intends to look at a list of houses eligible for the cooperative-backed subsidy. “I thought there was no chance of anything for me,” she says, easing a raft of transplanted seedlings into the greenhouse pond. “I’m eternally blessed.”

Ernest Graham, a cooperative member-worker of two years at the greenhouse, is also a believer. As the 31-year-old pivots from conveyor belt to box, stamping and packing heads of “Cleveland Crisp,” he talks of powerful forces for change that start small and take decades to prevail. He acknowledges how “people thought we were going to grow lettuce in the inner city, and all the stores would sell it, and immediately all would be happy sunshine and rainbows. That’s not how change happens.”

When I ask whether the cooperatives can really have made a difference in the neighborhoods, given the few people involved, it sets him off. “C’mon. Easy to say we’re not doing anything for neighborhoods. But look, I’ve got three people here right now—they were in prison—who probably wouldn’t have gotten a job anywhere else. And guess what? You don’t think they’re going out and talking to other people about how this has changed their lives? Sometimes that’s all you need – hope. And then that person tells somebody else. That’s what this is giving the inner city: Hope. It’s contagious, I really believe that. Nothing ever happens overnight. There are big issues in the neighborhoods. We’re planting seeds—not just the ones over there. It’s only a matter of time before it starts to spread.”